Brokers News

Gain Capital Strikes Back with a Shareholder Rights Plan

A day after receiving FXCM's proposal to acquire it, Gain Capital stroke back with a poison pill: the company's Board of directors adopted a stockholder rights plan, which is designed to reduce the likelihood that FXCM would gain control of the Gain Capital without paying an appropriate premium for all of the company's shares.

In its nature, a stockholder rights plan, i.e. a “poison pill” is a defense tactic used by companies' boards of directors to prevent takeovers. The plans employ a simple principle: they offer existing shareholders the rights to buy more shares in the company at a significant discount. In the case of Gain Capital this sure is a bargain – after the official announcements about FXCM's proposal, Gain's shares rose by 27% in a single day.

There is a catch, though: the plan could only be triggered (e.g. the rights can only be exercised) if 15% or more of the company common stock is acquired by FXCM (or another potential buyer, as of that matter). Another situation that can trigger the plan is one where a potential buyer (person or company) initiates a tender or an exchange offer that would result in that person or company owning 15% of the company's common stock.

If put into force, Gain Capital's shareholder rights plan will give existing shareholders rights distributed as a dividend at the rate of one Right for each share of common stock of the company held by stockholders of record at the close of business on April 22, 2013. Each right will allow stockholders to buy one one-hundredth of a share of a new series of participating preferred stock at an exercise price of $17.00.

Under certain circumstances the new rights are redeemable at a price of $0.01/right, and will expire on April 9, 2016, unless exercised, redeemed or exchanged prior to that date.

Gain Capital claims that this shareholder rights plan will let the Board of Directors “fully consider and evaluate an unsolicited proposal and provides an appropriate opportunity to consider alternatives to maximize stockholder value” and while this sounds reasonable, critics argue that the company is using the plan to extort more money from FXCM and keep the position of power – shareholder rights plans are controversial as it is, and the fact that Gain Capital came up with its so fast makes a lot of people suspect that it has been prepared about this and was ready to react.

The trouble with the plan is that it leaves all decisions in the hands of the BoD as they are the only ones who can revoke the rights, thus depriving shareholders of any actual say in the process. Hopefully, the best decision will be taken here for the benefit of both shareholders and traders. Either way, we will continue to monitor the situation closely and will let you know as soon as there is any news.

Through our retail brand, FOREX.com, we provide retail traders around the world with access to a variety of global OTC financial markets, including forex, precious metals and CFDs on commodities and indices. GAIN Capital also operates GTX, a fully independent FX ECN for hedge funds and institutions; Open eCry (OEC), an innovative online futures broker; and GAIN Securities, Inc. (member FINRA/SIPC) a licensed U.S. Broker-dealer.

GAIN Capital and its affiliates have offices in New York City; Bedminster, New Jersey; London; Sydney; Hong Kong; Tokyo; Singapore; Beijing; and Seoul.

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